The Loss of Loss Aversion: Paying Attention to Reference Points

Abstract

We agree with Gal and Rucker (, in press) that loss aversion is not as firmly established as typically assumed. We affirm, however, the more general principle put forward within Prospect Theory (D. Kahneman & A. Tversky, 1979), which is that reference points increase people's sensitivity to objective changes in value. We show how the literatures on counterfactual thought, social comparison, and goal pursuit are consistent with the notion that reference points increase sensitivity to change in value, while not being consistent with loss aversion. We then examine, within the framework of Regulatory Focus theory (E. T. Higgins, 1997, 1998), how different reference points combine with characteristics of the actor and the situation to give rise to loss aversion (more sensitivity to negative outcomes than to positive outcomes) as well as to the reverse pattern (more sensitivity to positive outcomes than to negative outcomes). Our review suggests that the status quo, even when used as a reference point, is not necessarily neutral. It also suggests that anchor points other than the status quo may serve as reference points and that people may use more than one reference point simultaneously. More generally, we call for a critical examination of the “bad is stronger than good” principle.

Going beyond a positive–negative dichotomy in judgment and decision‐making research: Insights for framing, counterfactual thinking, and ambivalence

“…Several different lines of thinking in social psychology have advocated for more complex conceptualizations of positive and negative information. Regulatory focus theory provided one prominent theoretical development with evidence that negative and positive outcomes are experienced differently in the domain of losses (when outcomes concern punishments or problems) compared to the domain of gains (when outcomes concern rewards or advancements; Higgins, ; Higgins & Liberman, ; Idson, Liberman, & Higgins, ; Liberman, Idson, & Higgins, ; Scholer, Zou, Fujita, Stroessner, & Higgins, ). To illustrate, a person could have a goal of using cash instead of credit to make a purchase in order to avoid a penalty (in the domain of losses) or in order to receive a discount (in the domain of gains).…”

Loss Aversion, Intellectual Inertia, and a Call for a More Contrarian Science: A Reply to Simonson & Kivetz and Higgins & Liberman

“…Four exceptional scholars—all who have made outstanding contributions to the study of decision making and psychology—provided two thought‐provoking commentaries to our article (Gal & Rucker, ). We appreciated the commentary by Higgins and Liberman () (hereafter H&L) on several fronts. First, they provided a rich discussion of reference points within the framework of regulatory focus theory; H&L elucidate how different regulatory strategies lead to the adoption of different reference points which, in turn, lead to distinct outcomes.…”

“…

Higgins and Liberman (2018) and Simonson and Kivetz (2018) offer scholarly and stimulating perspectives on loss aversion and the implications for the sociology of science of its acceptance as a virtual law of nature. In our view, Higgins and Liberman (2018) largely complement our conclusion that the empirical evidence does not support loss aversion.

…”

A New Version of Loss Aversion: Introduction to Research Dialogue

“… This article is part of a Research Dialogue: Gal & Rucker (): https://doi.org/10.1002/jcpy.1047 Simonson & Kivetz (): https://doi.org/10.1002/jcpy.1046 Higgins & Liberman (): https://doi.org/10.1002/jcpy.1045 Gal & Rucker (): https://doi.org/10.1002/jcpy.1044 …”

“…Higgins and Liberman ( – this issue), in a lucid analysis, reframe loss aversion principles within the broader context of responses to reference points. Like Gal and Rucker ( – this issue), Higgins and Liberman highlight areas in which one might have expected to find evidence for loss aversion, but do not.…”